{"id":138595,"date":"2025-09-12T12:42:08","date_gmt":"2025-09-12T12:42:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/138595\/"},"modified":"2025-09-12T12:42:08","modified_gmt":"2025-09-12T12:42:08","slug":"were-all-france-now-why-the-west-is-one-shock-away-from-a-full-blown-debt-crisis","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/138595\/","title":{"rendered":"We\u2019re all France now: Why the West is one shock away from a full-blown debt crisis"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

France’s public debt has reached \u20ac3.4-trillion, thrusting President Emmanuel Macron’s government into a crisis.LUDOVIC MARIN\/Reuters<\/p>\n

The fall of another French government this week was a clear sign that an increasingly isolated President Emmanuel Macron has overstayed his welcome at the \u00c9lys\u00e9e Palace, with almost two-thirds of voters calling on him to resign before the end of his second term in 2027, an unprecedented development in modern French politics.<\/p>\n

\u201cNever before have so many French people envisaged what had long been considered a taboo in the Fifth Republic: the resignation of the head of state,\u201d the Odoxa polling firm noted<\/a> in a survey released on the eve of a confidence vote in the National Assembly that brought down the nine-month-old government<\/a> of now ex-prime minister Fran\u00e7ois Bayrou.<\/p>\n

Mr. Bayrou was collateral damage amid an intractable debt spiral that the French political class has been unable, or unwilling, to address. His proposal to cut \u20ac44-billion ($71-billion) from the 2026 budget was met with Bastille-level hostility by opposition parties on the left and right of Mr. Macron\u2019s dwindling centrist coalition, and the French population in general. <\/p>\n

And so, Mr. Bayrou went stoically to the guillotine, though not before delivering<\/a> this parting shot at lawmakers: \u201cYou have the power to overturn the government, but you do not have the power to erase reality. And the reality is inexorable.\u201d<\/p>\n

That reality is government debt of \u20ac3.4-trillion ($5.5-trillion) and counting, soaring debt-service costs as interest rates return to normal levels and anemic economic growth as the public borrowing to pay for current spending crowds out private investment. Bond markets are on edge waiting for the next shoe to drop \u2013 a recession or an even worse economic shock \u2013 unleashing a full-blown debt crisis from which it could take decades to recover. <\/p>\n

Macron names loyalist S\u00e9bastien Lecornu as new prime minister<\/a><\/p>\n

The worst part of it all is that France<\/a> is hardly alone among Western countries in edging closer to the fiscal precipice; it may not even be the first Group of Seven country to go over it. Since the onset of the 2008 financial crisis, G7 governments have borrowed their way out of every economic rough patch. They threw open the spending floodgates during the COVID-19 pandemic and have made no meaningful attempt since to shut them.<\/p>\n

The average ratio of net-debt-to-gross-domestic-product among the G7 is now about 95 per cent, compared to 55 per cent in 2006. For the better part of a decade, this debt accumulation was encouraged<\/a> by some of the world\u2019s most influential economists, who argued that interest rates would remain at historically low levels because of \u201csecular stagnation\u201d in Western economies beset by aging populations and weak demand.<\/p>\n

How is that working out? The world is awash in government debt, with no end in sight as Western countries ramp up defence spending without cutting elsewhere. Investors are demanding to be compensated for the rising risk of default as leaders across the G7 demonstrate a singular lack of political will to rein in their deficits. <\/p>\n

Government debt is surging. Here\u2019s why investors need to pay attention<\/a><\/p>\n

Britain\u2019s Labour government is nearing a meltdown as backbenchers in Prime Minister Keir Starmer\u2019s caucus rebel against any social spending cuts and as markets lose faith in Chancellor of the Exchequer Rachel Reeves\u2019s ability to square the budget circle. <\/p>\n

Canada is not in much better shape, no matter how much progressive economists try to spin the numbers. <\/p>\n

Former prime minister Justin Trudeau and ex-finance minister Chrystia Freeland championed the \u201csecular stagnation\u201d thesis to run ever-larger deficits. Where did that get us? Combined federal and provincial net debt has nearly doubled since the 2008 financial crisis to $2.3-trillion, or almost 75 per cent of GDP. <\/p>\n

That might not look so bad on paper, at least compared to other G7 countries (excluding Germany). But unlike France and Italy, which can count on the European Central Bank to bail them out, there are limits to what the Bank of Canada<\/a> could do to rescue governments here. And unlike the U.S. greenback, which remains the world\u2019s reserve currency, the Canadian dollar is hardly considered a \u201csafe haven.\u201d <\/p>\n

Indeed, Canada could be particularly vulnerable if global bond markets turn sour. And that day could come soon. <\/p>\n

U.S. President Donald Trump inherited a budget deficit of 6.4 per cent of GDP. But Mr. Trump\u2019s policies will dig the world\u2019s biggest economy into an even deeper hole, one that cannot be plugged with revenue from tariffs on U.S. trading partners. If anything, Mr. Trump\u2019s trade war could be a tipping point that pushes the global economy over the cliff.<\/p>\n

\u201cDebt and financial crisis tend to occur precisely when a country\u2019s fiscal situation is already precarious, its interest rates are high, its political situation is paralyzed, and a shock catches policymakers on the back foot,\u201d Harvard University economist Kenneth Rogoff writes<\/a> in the current issue of Foreign Affairs. \u201cThe United States already checks the first three boxes; all that is missing is the shock.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: France’s public debt has reached \u20ac3.4-trillion, thrusting President Emmanuel Macron’s government into a…\n","protected":false},"author":2,"featured_media":138596,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":["post-138595","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-alberta","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-business","tag-ca","tag-canada","tag-canada-news","tag-canada-sports","tag-canada-sports-news","tag-canada-trafficcanada-weather","tag-canadian-breaking-news","tag-canadian-news","tag-economy","tag-education","tag-environment","tag-federal-government","tag-foreign-news","tag-globe-and-mail","tag-globe-and-mail-breaking-news","tag-globe-and-mail-canada-news","tag-government","tag-life-news","tag-lifestyle","tag-local-news","tag-manitoba","tag-national-news","tag-new-brunswick","tag-newfoundland-and-labrador","tag-northwest-territories","tag-nova-scotia","tag-nunavut","tag-ontario","tag-pei","tag-photos","tag-political-news","tag-political-opinion","tag-politics","tag-politics-news","tag-quebec","tag-sports-news","tag-technology","tag-travel","tag-trudeau","tag-us-news","tag-world-news","tag-yukon"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/138595","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=138595"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/138595\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/138596"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=138595"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=138595"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=138595"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}